1% Better is 1000% Better

The "little" decisions add up.

In today's business world, the differences between the good, better, and best companies have never been so large.

Gone are the days of a company succeeding because its product is 10 times better than that of the competition -- nowadays, consumers expect every product or service to be top tier.

Rather, today's companies succeed at the margin, such as through 1% improvements in granular metrics that aggregate and compound over time, ultimately creating huge effects. In fact, the concept of compound interest - which we've addressed here - shows exactly how seemingly tiny differences add up over time.

Consider how small differences compound in a simple exercise (illustrated here) of two men's apparel companies that sell direct to consumer online. Let's refer to them as Business A and Business B. Both market and sell casual wear to male Millennials, and both have 1 million email subscribers. Business A exhibits solid metrics -- a 10% email open rate (OR), a 3% click through rate (CTR), and a 2% conversion rate (CVR). Meanwhile Business B has an OR of 12%, a CTR of 5%, and a CVR of 4%. How do these 2% differences affect Business B's topline compared to that of Business A?

Business B generates 240 sales from its email list, whereas Business A only moves 60 articles of clothing -- a 4X differential! This shows the dramatic effects that seemingly small differences can have, but it also serves as a reminder to relentlessly focus on incremental improvements. Without this mindset, any company can fail and become another statistic of today's cutthroat business environment.

Companies must avoid this fate and adopt a culture focused on relentlessly improving. After all, if a company's brand image is based on quality, the product or service must mirror that! How can companies do this? In a few ways:

This may seem a bit counterintuitive, but always be in Beta.

Beta is the time to squash bugs, iterate, and perfect your product or service -- no matter the industry. It's a time for intense, but productive scrutiny. Yet all too often, we see companies become complacent after completing their MVP and launching a product to market. The stakes only get higher after launching, so you should continue to monitor the quality of your product even more closely. But how can you do this?

Test, test, test.

Your entire team should be concerned with constant betterment, and testing your product -- through the likes of A/B testing, quality assurance, or market research -- is integral to creating a culture of relentless improvement. While everyone should have a vested interest in continuously testing, specific responsibilities must be divvied accordingly. This is often overlooked in startups where titles and ownership can be murky. At the very least, partition testing roles into the following three ways:

At M13 we are obsessed with affecting the outcomes for companies in our portfolio. As such, we have compiled a series of best practices and resources -- our "Playbook" -- that we share with our portfolio companies. But in order for it to be effective, we're constantly testing and iterating our approach, ensuring that we share the best advice.

It's a dynamic process, but it's necessary for us -- and any company -- to keep growing and improving. Now get out there and figure out how you can continue to move the needle for your company!

Published on: Jul 24, 2018

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.